Jayson's Blog

The Ultimate Savings Account

America One Mortgage and Realty — Wed, 12 Dec 2007 17:48:34 -0600

THE ULTIMATE SAVINGS ACCOUNT!

On almost a weekly basis, when I meet a new client, I'm seeing a common trend: Individuals and business owners, who keep their savings, reserve cash, and/or emergency funds sitting in a (no good!) good old fashioned savings account.

Don't get me wrong, the concept of saving your money is by no means defunct. However, there are many alternatives to the old school savings account. Many either do not have financial advisors, or their advisors have done a poor job of exposing them to the alternatives that are out there.

Most people I ask, would tell me the best alternative place to safely accumulate their savings would be a Certificate of Deposit (CD), or Money Market Account. WRONG!

Let's talk about these two savings vehicles for a moment.

Certificates of Deposit

A certificate of deposit, otherwise known as a CD, offers a place to save money and is routinely offered by your local bank. A CD is a time deposit, which means the money you place on deposit must remain there for a specified period of time before you can withdraw it. CD's are FDIC Insured up to $100,000.00

You can purchase a CD with a variety of deposit terms. Most will tie your money up for any where from one month to five years, but some for even longer. The longer term the CD, the more interest the bank will pay you. You are required to keep your money in the CD for the duration of the term you select. This creates an obvious liquidity issue.

Most CD's offer investment rates in the High 3% to Low 4% range, and all returns are taxable during the year earned. Combine this with low liquidity, and I'm sure you'll agree a CD makes a rather dull investment (savings) choice.

Money Market Accounts

There are two different types of money market accounts: money market bank accounts, and money market mutual funds.

Money market bank accounts are much like savings accounts, only with higher yields. Because the money is invested by the bank more aggressively than money held in a savings account, there are usually higher balance requirements, and a limited number of withdrawals per month or quarter. Money market bank accounts are FDIC Insured up to $100,000.00

Money market mutual funds are available through investment companies. If you do not have an existing brokerage account, you would need to open one first. Usually you would need to open the account with the fund company issuing the particular fund that is of interest to you. Money market mutual funds are not FDIC Insured.

Both bank account and mutual fund money markets offer investment returns in the Mid to High 4% range. Returns are taxable during the year earned, with the exception of some mutual fund money market accounts which are tax free, but yield investment returns in the Low 3% range.

There's got to be a better alternative to the CD and money market accounts right? Good news....... There is!

The Ultimate Savings Account!

The ultimate savings account actually deals with two important issues surrounding sound financial planning: Adequate amounts of savings (emergency cash), and adequate amounts of life insurance. PLEASE, don't stop reading! Many want to run for the hills when they hear the word life insurance. The fact is, it is the only form of insurance you are GUARANTEED will one day pay off (think about it!).

Did you know there is a form of life insurance called Equity Indexed Universal Life (EIUL)? Did you know there are EIUL policies that return 9% to 10% annualy, with ZERO risk to your investment? Did you know that depending on how a EIUL policy is funded it's earnings are ALWAYS tax deferred, and could even be tax free?

Who among us has enough life insurance? I can count on one hand the number of clients I've consulted who had adequate levels of life insurance. Most people have savings, and emergency funds in bank accounts, CD's, or money market accounts earning somewhere near 4%, and paying annual income tax on the earnings (effectively 3%)! Those savings can be used to purchase badly needed life insurance, and at the same time earn MORE interest, TAX DEFFERED, with no risk to their capital and no liquidity issues.

You might be asking yourself, " How much life insurance should I have"? If you're like most people who still work, you have dependents that rely on your income. Your goal should be to purchase enough life insurance that should you die, your loved ones can place the paid death benefit into a guaranteed investment and replace your income on the earned interest. This strategy requires a policy of fifteen to twenty times your income. Although this may not always be possible, it should definitely be a standing goal.

My company, Jayco Financial & Insurance Services has researched and back-tested the returns of thousands of Equity Indexed Universal Life (EIUL) policies, and spent countless hours studying and comparing EIUL's to historical CD, savings, and money market returns. Based on pure earnings and savings qualities alone, the EIUL beats all others, hands down. The life insurance is just an added bonus, and no monthly or annual payments are required!

Deposits in insurance accounts are insured to $100,000.00, and death benefits are guaranteed up to $250,000.00. This feature, along with their tax deferred characteristics, much higher returns, and the added bonus life insurance, makes EIUL policies the premier solution for effective cash accumulation. This is where the "Smart Money" keeps their savings.

If you've never seen a comparison over a ten year period of income taxed savings returns -vs - tax deferred savings returns (even at equivalent rates), or you're not sure if you have enough life insurance, or lastly, you have funds wasting away in an old school savings, CD, or money market account, you owe it to yourself to speak to a financial professional regarding the matter.

High End Home Sales Doing Fine

America One Mortgage and Realty — Tue, 02 Oct 2007 22:38:18 -0500

While the non-prime real estate market is in the dirt, high end U.S. home sales are doing well, according to an analyisis of nationwide home sales in July.

The national trend has gone largely unnoticed because the federal government and the National Association of Realtors - the main sources of housing data - don't report statistics for different price segments, The New York Times reported.

The newspaper and DataQuick Information Systems found that sales of homes in the to five percent (5%) of the market have been increasing in many cities, while saleshave fallen in the market's middle and bottom sectors.

Affluent families are getting richer and are spending their money, DataQuick analyst Andrew LePage said in the Times. In addition, foreign investors are buying large U.S. homes, the newspaper said

Pay Your Mortgage Off Early

America One Mortgage and Realty — Tue, 02 Oct 2007 22:10:59 -0500

Bank your money in your mortgage.

With the Home Ownership Accelerator, you direct-deposit your entire paycheck into your mortgage, instead of your checking account. This immediately reduces your principal balance. Since interest is based on your daily balance, you start saving interest immediately compared to traditional loans!

Access your funds just like you used to.

You pay all of your expenses out of your mortgage, just like you would with a traditional bank account -- using the unlimited checks, free ATM/Debit card, and free online bill-pay that comes with the account. Until you need the money, though, it's in your mortgage in the form of a lower principal balance, saving you 5-6% in mortgage interest, instead of earning 1% in a bank account. Less interest means that more of your take-home pay goes towards principal, and you pay off sooner. With no change to spending habits!

Let's look at an example:

Imagine you have net pay of $100,000 annually, saving 15% of your net income after expenses, and you have a $400,000 30-year fixed-rate mortgage at 5.5%. And, let's even assume that mortgage interest rates are climbing on a "reverse course" that mirrors their recent decline (APR 8.19%)! A 'worst case' rate scenario!"

Saves interest, pays off sooner.

In this example, refinancing to the Home Ownership Accelerator roughly doubles your mortgage efficiency. You could pay off in as little as 17.3 years and save nearly $89,000 (21%) in interest, compared to the 30-year fixed rate loan at 5.5%. In fact, to save that much interest, you'd have to find a 30-year mortgage at 4.4%, which is very unlikely.

But what if rates go up even more?

In this example, the adjustable rate on the Home Ownership Accelerator would have to average 9.6% over the entire 17.3 years for the interest payments to equal that of the 30-year fixed rate mortgage at 5.5%. That's not likely to happen either

Home Sales Fall; The Worst Is To Come

America One Mortgage and Realty — Tue, 02 Oct 2007 21:42:59 -0500

The report issued by National Association of Realtors on sales of existing homes, in the beginning of the previous week, a report on new house sales during the month of August was issued jointly by the US Department of Housing and Urban Development and US Census Bureau in the end of last week, which shows a significant fall in the sales of new house than what it was in the month of July as well as from August 2006.

According to the report, during August the sale of one-family homes was 795,000 units at seasonally adjusted annual rate. This was less by 8.3 percent of July rates of 867,000 units at seasonally adjusted annual rate. In last 7 years, this was the slowest sales pace. Earlier a few analysts had estimated that the sales would touch the unit of 830,000 for the month of August.

During the month of July the original sales estimate was of 870,000 units at annual rate, but that also altered downwards. The most shocking figures lay in the comparison in between the August 2007 data and August 2006 data. The recent estimates are down by 21.2 percent from 1,009,000 units, what was estimated during the last year. According to the Reuters News Agency, in the last 37 years this is the biggest fall in year-over-year figures.

Analysts believe that the main reason behind the fall in the housing sector is the mortgage market disorder. The percentage in the fall of housing market is estimated to be in ratio with the fall in the sub prime mortgage loans. It is believed that the sub prime mortgage loans will soon disappear and is on a verge of becoming history, since the lenders are terrified of the increase in rate of defaults by the sub prime borrowers and have no more faith in lending to the people with poor credit history.

According to most of the big and well-known lenders, it is no more a good business to lend money at high interest rate to those who have a bad credit report, as the chances of default are high these days. Many mortgage lenders have even closed their sub prime mortgage department, as they don't want to take any further risk. Many people lost their jobs due to this sub prime division closing decision.

It is believed that, if the things in the mortgage market continue in the similar passion then it will affect the housing market more harshly. It is estimated that things will turn poorer in the housing market if there is no improvement in the sub prime mortgage lending.

Some of the major players in this field assume that it is possible that the housing market will probably hit rock bottom by the second quarter of 2008 or some time later. They believe that, if the housing market continues to fall this way then it could affect the spending and the confidence of the consumer.

The situation is worsening as seen in the last week when some nation's largest homebuilders like D.R. Horton, Lenner Corporation and KB Homes have declared their extensive quarterly losses.

Want To Sell Buy Owner?

America One Mortgage and Realty — Fri, 28 Sep 2007 13:41:34 -0500

Should You Try to Sell By Owner?

The truth is that only about ten percent of owners successfully sell their home on their own. That varies by region and the number goes up a tad for professional real estate investors because they are more familiar with real estate than your average homeowner.

Those that do sell their home successfully usually accept not only a lower price, but they net less than if they had sold it with a professional qualified real estate agent helping them - especially in an uncertain market with high inventory.

Like today.

It would currently take almost nine months to sell all the homes currently on the market at the current sales pace, even if no new homes came on the market. That is with all the advantages of a real estate agent and the Multiple Listing System (MLS) at your side. On your own, it's even harder.

So why is the MLS such a big help?

Well, if you run an ad to sell your home, you not only have to pay for the ad but you can only sell your home to those that see your ad. That limits demand. As everyone who has taken Econ 101 knows, the more demand for a product, the higher the price: The less demand, the lower the price.

By sharing information about your home via the MLS with all other Realtors and brokerages in the area, you increase demand for your home. Not only does your agent's company advertise, but so do many others. Since less than ten percent of prospects actually buy the home they see advertised, real estate agents have to find them another home to purchase.

Realtors find those homes in a database called the MLS. Unless you are an agent, you do not have access to the program. As a result, not only is your agent working to sell your home, but so are all the other MLS members, too. Your agent's efforts are multiplied by those of all the other agents in the area.

More demand. Higher price.

What are other problems with selling by owner?

A FSBO (For Sale by Owner) sign attracts lowball offers, for one thing. Think of buyers that want not just a deal, but a steal. Have you ever stayed up late and seen an infomercial about how to get rich in real estate? The number one method is to find a steal, often by taking advantage of someone who does not know what they are doing.

Then there are phone calls. Who answers them? What do you say? How do you convince them to come look at your home when you're available to show it? How do you convince them to write an offer? Where do you get the right forms? What forms do you need?

That's just the beginning.

Is the buyer qualified? Do they have money in the bank, good credit, can they get a mortgage loan? Is your buyer's loan officer competent and flexible?

There are also lots of details. Do you need an escrow company or a lawyer? Termite inspection? Home inspection? Warranties? Title inspection?

And when there is a challenge (a polite word for problem), as their always is, who handles it?

It isn't easy and we've just barely scratched the surface.

We're biased, of course, but we recommend a professional agent.

Your Down Payment Affects Everything

America One Mortgage and Realty — Fri, 28 Sep 2007 13:28:12 -0500

Your First Step Toward Buying a Home

When preparing to buy a home, the first thing many homebuyers do is look at "homes for sale" ads in newspapers, magazines and listings on the internet. Some potential buyers read "how-to" articles like this one. The next thing you should do - before you call on an ad, before you talk to a Realtor, before you shop for interest rates - is look at your savings.

Why?

Because determining how much money you have available for down payment and closing costs affects almost every aspect of buying a home - including how you write your purchase offer, the loan programs you qualify for, and shopping for interest rates.

Mortgage Programs

If you only have enough available for a minimum down payment, your choices of loan program will be limited to only a few types of mortgages. If someone is giving you a gift for all or part of the down payment, your options are also limited. If you have enough for the down payment, but need the lender or seller to cover all or part of your closing costs, this further limits your options. If you borrow all or a portion of the down payment from your 401K or retirement plan, different loan programs have different rules on how you qualify.

Of course, if you have enough for a large down payment, then you have lots of choices.

Your loan choices include such varied programs as conventional fixed rate loans, adjustable rate mortgages, buydowns, VA, FHA, graduated payment mortgages and all the varieties of each.

Shopping Rates

A very important reason you need to have at least some idea of your down payment is for shopping interest rates. Some loan programs charge a slightly higher interest rate for minimal down payments. Plus, the interest rates for different loan programs are not the same. For example, conventional, VA, and FHA all offer fixed rate loans. However, the rates vary from one program to another.

If you shop lenders by phone, the loan officer will be able to tell which programs fit and quote you rates accordingly. However, if you are shopping on the internet, you have to have some idea of your loan program on your own.

Writing Your Offer

Another reason you need to have a clue about your down payment is because it affects how you write your offer to purchase a home. Not only are you required to put your down payment information in the offer, but different loan programs have different rules which also affect how you write your offer. This is especially important when dealing with FHA and VA loans.

If you are asking the seller to pay all or part of your closing costs, you have to be certain your loan program allows what you are asking. For smaller down payments, lenders allow the seller to pay less closing costs than for larger down payments. Some loan programs will allow a seller to pay certain types of costs, but not others.

Finally, your down payment also affects your ability to qualify for a loan. When you make a small down payment, lenders are fairly strict about having you conform to their underwriting guidelines. For larger down payments, they will tend to make allowances or exceptions to the rules.

Conclusion

As you can see, the down payment affects every choice you make when you buy a home. Although you should look at ads, familiarize yourself with neighborhoods, learn about prices, and read as much as you can - when you get ready to take action - the first thing you should do is figure out how much money you have available for the purchase.

For a Quick Easy Loan Approval:

America One Mortgage and Realty — Fri, 28 Sep 2007 13:24:56 -0500

Have These Items Ready When You Apply For a Loan

Income Items
- W2 forms for the last two years
- Most recent pay stubs covering a 30 day period
- Federal tax returns (1040's) for the last two years, if:
  - you are self-employed
  - earn regular income from capital gains
  - earn sizable interest income, etc.
  - earn more than 25% of your income from commissions or bonuses
  - own rental property
  - or are in a career where you are likely to take non-reimbursed business expenses).
- Year-to-Date Profit and Loss Statement (for self employed)
- Corporate or Partnership tax returns (if you own more than 25% of the business)
- Pension Award letter (for retired individuals)
- Social Security Award letters (for those on Social Security)
Asset Items
- Bank statements for previous two months (sometimes three) on all accounts. All pages, even if you don't think them important.
- Statements for two months on all stocks, mutual funds, bonds, etc
- Copy of latest 401K statement (or other retirement assets because they can count as reserves)
- Explanations for any large deposits and source of those funds
- Copy of HUD1 Settlement Statement on recent sales of homes
- Copy of Estimated HUD1 Settlement Statement if a previous home is for sale, but not yet closed
- Gift letter (if some of the funds come as a gift from a family member - the lender will supply a blank form)
- Gifts can also require:
  - Verification of donor's ability to make the gift (bank statement)
  - Copy of the check used to make the gift
  - Copy of the deposit receipt showing the funds deposited into bank account or escrow
- Note: many get their statements of various kinds over the internet and these are not always acceptable to lenders, especially when the printed version does not contain the borrower's name, account number, and the name of the institution.
Credit Items
- Landlord's name, address, and phone number (if you rent - for verification of rental)
- Explanations for any of the following items which may appear on your credit report:
  - Late payments
  - Credit inquiries in the last 90 days
  - Charge-offs
  - Collections
  - Judgments
  - Liens
- Copy of bankruptcy papers if you have filed bankruptcy within the last seven years
Other
- Copy of purchase agreement (if you have already made an offer)
- To document receipt of child support (if you desire to show it as income)
  - Copy of Divorce Settlement (to show the amount)
  - Copies of twelve months canceled checks to document actualreceipt of funds
FHA Loans
- Copy of Social Security Card (or other documentation of social security number)
- Copy of Driver's license
VA Loans
- Copy of DD214
Refinances
- Copy of your most recent monthly mortgage bill
- The following cannot hurt to have ready, but are not as necessary as they once were:
  - Copy of Note on existing loan
  - Copy of HUD1 Settlement Statement on existing loan

How Much House Can You Afford?

America One Mortgage and Realty — Fri, 28 Sep 2007 13:22:16 -0500

Debt-to-Income Ratios (DTI)

To determine your maximum mortgage amount, lenders use guidelines called debt-to-income ratios. This is simply the percentage of your monthly gross income (before taxes) that is used to pay your monthly debts. Because there are two calculations, there is a "front" ratio and a "back" ratio and they are generally written in the following format: 33/38.

The front ratio is the percentage of your monthly gross income (before taxes) that is used to pay your housing costs, including principal, interest, taxes, insurance, mortgage insurance (when applicable) and homeowners association fees (when applicable). The back ratio is the same thing, only it also includes your monthly consumer debt. Consumer debt can be car payments, credit card debt, installment loans, and similar related expenses. Auto or life insurance is not considered a debt.

A common guideline (Text Book Guideline) for debt-to-income ratios is 33/38. A borrower's housing costs consume thirty-three percent of their monthly income. Add their monthly consumer debt to the housing costs, and it should take no more than thirty-eight percent of their monthly income to meet those obligations.

The guidelines are just guidelines and they are flexible. If you make a small down payment, the guidelines are more rigid. If you have marginal credit, the guidelines are more rigid. If you make a larger down payment or have sterling credit, the guidelines are less rigid. The guidelines also vary according to loan program. FHA guidelines state that a 29/41 qualifying ratio is acceptable. VA guidelines do not have a front ratio at all, but the guideline for the back ratio is 41. Actually the most common ratio used Today is the 45% Ratio. The lender is requiring that no more than 45% of your monthly income is needed to pay all monthly payments.

Example: If you make $5000 a month, with a 45% DTI guideline, your maximum monthly payments can not exceed $2250. This includes your consumer debt, plus your monthly housing and credit payments.

Short Sale - Buyer & Broker Beware!

America One Mortgage and Realty — Fri, 28 Sep 2007 13:10:39 -0500

Recently, more short sale properties have come on the market. A short sale is a situation where a property seller needs to sell and the sale proceeds are not sufficient to pay off the existing mortgage. It is an alternative to foreclosure. The term short sale or short pay refers to a process whereby the mortgage company must agree to a reduced payoff in order for the sale to take place. All sale costs must be included and the seller receives nothing, except debt relief and not having a foreclosure on their credit record.

If you're a prospective buyer on such a property, beware! The seller may accept your offer; you may invest $1000 in an appraisal and a property inspection, but you may not get the property because the mortgage company may not agree to reduce their payoff. The mortgage company is a third entity that is not a party to your contract, yet their decision will affect the outcome of the transaction. The mortgage company will review the short sale proposal and closing the sale will depend on their response.

Many short sales fail because the mortgage company representative is unfamiliar with the local market and responds with an unrealistic proposal. When buying a short sale property, don't expect a quick answer and don't expect the mortgage company to respond logically. They will seek any additional assets the homeowner may have and they will demand the brokers reduce their commissions. They may demand the seller to sign a personal note to pay back the shortfall. Remember, the mortgage company wants to recover as much of the loan as possible and if the property goes to foreclosure, well that's another department's problem.

Additionally, many loans have PMI (Private Mortgage Insurance) that will cover a portion of their loss so the mortgager's motivation to reach an agreement may be less because they're covered regardless. You may have to start negotiating with the PMI company, adding additional time to the sale process. Unless you have considerable experience with short sales, foreclosures and working with lenders' loss mitigation departments, be very cautious in submitting an offer on a property in a short sale situation.

Buyers, ensure that you have an escape provision if the process takes longer than you want or if a more suitable property becomes available.

Sellers, be realistic. Consult with your accountant and your attorney on the tax and legal ramifications of a short sale. You may have to be willing to undergo an asset evaluation and even be willing to walk away and let the lender have the property.

Brokers, you will have to work two to three times as hard and may never help your client achieve their goals and/or receive appropriate compensation.

Lenders, wake up! Work with the buyers and brokers who can ultimately save you money. History shows that a property that goes through the foreclosure process nets less money to the lender than most short sale offers.

Condo Hotels For Investing

America One Mortgage and Realty — Fri, 28 Sep 2007 12:02:37 -0500

The rental revenue is shared with the professional hotel management company. You pay no upfront fees for this management. Instead, the management company takes a portion of the rental income that is generated. Although the revenue splits between owner and management company do vary from project to project, most hover around the 50/50 mark.

Condo hotels are strategically located in luxurious resort settings and premier urban destinations, which command top dollar for the nightly stays and are almost always marked by high year round occupancy rates. This combination of high nightly rental rates and high year round occupancy rates generally create a very desirable cash flow outcome.

In addition to the rental revenue that is generated, you can enjoy the appreciation that condo hotels typically experience. Many condo hotels, especially the branded condo hotels, have seen double digit growth year after year, and have out performed traditional condos or single family homes in the same resort market. A common question is whether condo hotels can be resold like normal real estate. And the answer is yes. Condo hotels are fee simple deeded real estate. You buy and sell them just like you would any other form of real estate.

A common question revolves around financing and whether favorable rates can be attained. And the answer is yes. You'll find that the biggest financial institutions in the world make loans on condo hotels and they are typically quite close to a loan that can be found for a traditional vacation home. Most condo hotel developers have even made arrangements with specific lenders so that they may offer their clients the most favorable rates.

And remember, there may be additional tax benefits of owning a condo hotel over a traditional condo. If the condo hotel is used for non-primary residence or residential rental, owners may be able to accelerating the depreciation on their condo hotel unit from 39 years, down to 27.5, 15, 7, and even 5 years. Be sure to consult with your accountant to see if the tax advantages can work for you. If your accountant is not intimately familiar with condo hotels, have him refer you to an associate who is.

Builders Hurting Due To Lending Crisis

America One Mortgage and Realty — Fri, 28 Sep 2007 11:32:00 -0500

Last month, Existing Home Sales fell again. It is reported that a large number of homebuilders are facing their worst ever quarterly earnings. These homebuilders believe the major cause of this mess, is the continuous sub prime mortgage crisis.

The National Association of Realtors mentioned that during the month of August, the sales of previously owned homes fell by 4.3 percent from the month of July, putting sales at five year lows. In the month of August, the annual sales rate was 5.50 million, down from 5.75 million for the month of July. Statistics show that existing home sales have fallen almost 13 percent year-over-year (last twelve months).

For example; Lennar Corporation declared their biggest quarterly loss in company history after it wrote down $848 million in the value of real estate. The company's net loss was $513.9 million, or $3.25 per share, compared to profits of $206.7 million, or $1.30 per share, the same time last year

Lennar reported a drop of 44 percent in its revenue last quarter, and has reduced 35 percent of its work force. The company's chief executive, Stuart Miller, said further staff reductions were in store for the fourth quarter. They credit the dismal performance and bleak outlook to the lending crisis and the excess inventories it has created.

Joshua Shapiro, the chief U.S. Economist of a New York research firm, believes the problems builders are having is due to the negative environment surrounding residential real estate. This affects and creates changes in consumer's attitude and in consumer's spending habits.

On the other hand, Darlene Williams, Assistant Secretary of US Housing and Urban Development, says that sub- prime mortgages lenders play a very important role in increasing home ownership in the United States. She hoped that the United States Congress would pass Federal Housing Administration reforms, to expand federal backing of mortgages.

Buying Bank Owned Properties (REO)

America One Mortgage and Realty — Fri, 28 Sep 2007 10:54:42 -0500

So you'd like to buy a bank owned property?

You've watched the late-night infomercials and you're ready to do the bank "a favor" and take a problem off their hands. Plus, you expect to make "a killing" in the process. Sounds great and it might just happen, but first you should take a look at some facts and get prepared.

REO vs. Foreclosure

An REO (Real Estate Owned) is a property that goes back to the mortgage company after an unsuccessful foreclosure auction. You see, most foreclosure auctions do not even result in bids. After all, if there was enough equity in the property to satisfy the loan, the owner would have probably sold the property and paid off the bank. That is why the property ends up at a foreclosure or trustee sale.

Foreclosure sales begin with a minimum bid that includes the loan balance, any accrued interest, plus attorney's fees and any costs association with the foreclosure process. In order to bid at a foreclosure auction, you must have a cashier's check in your hand for the full amount of your bid. If you are the successful bidder, you receive the property in "as is" condition, which may include someone still living in the property. There may also be other liens against the property.

Since what is owed to the bank is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale. Then the property "reverts" to the bank. It becomes an REO, or "real estate owned" property.

REO Properties For Sale

The bank now owns the property and the mortgage loan no longer exists. The bank will handle the eviction, if necessary, and may do some repairs. They will negotiate with the IRS for removal of tax liens and pay off any homeowner's association dues. As a purchaser of an REO property, the buyer will receive a title insurance policy and the opportunity to investigate the property.

A bank owned property might not be a great bargain. Do your homework before making an offer. Make sure that the price you pay (if you're successful) is comparable to other homes in the neighborhood. Consider the costs of renovation, including time to complete them. Don't get caught up in a ‘bidding war' and pay over market value. It's an old myth that "foreclosures" are a bargain.

How Banks Sell REO's

Each bank/lender works a little differently, but they all have similar goals. They want to get the best price possible and have no interest in "dumping" real estate cheaply. Generally, banks have an entire department set up to manage their REO inventory.

Once you make an offer to purchase, banks generally present a "counter-offer." It may be at a higher price than you expect, but they have to demonstrate to investors, shareholders and auditors that they attempted to get the highest price possible. You should plan to counter the counter-offer.

Your offer or counter-offer will probably have to be reviewed and approved by several individuals and companies. Even once an offer is accepted, the bank may insert wording like "..subject to corporate approval with 5 days."

Property Condition

Banks always want to sell a property in "as is" condition. Most will provide a Section 1 pest certification, but not unless you include it in your offer and negotiate the point. They will allow you to get all the inspections you want (at your expense), but they may not agree to do any repairs.

Your offer should include an inspection contingency period that allows you to terminate the sale if the inspections reveal unanticipated damages that the bank will not correct.

Even though you agreed to "as is," always give the bank another opportunity to make repairs or give you a credit after you've completed your inspections. Sometimes they'll re-negotiate to save the transaction instead of putting the property back on the market, but don't take it for granted.

Banks do not want to see a lot of proprietary disclosures; they are exempt from the California Seller's Transfer Disclosure Statement (TDS-14). If there are real estate agents involved, either representing you or the bank, those agents are required to provide you their disclosure statements.

Most banks will not provide financing on their REOs but it doesn't hurt to ask. Especially if the property has extensive damage and you are purchasing it "as is."

Making an Offer

Before making an offer, have your agent contact the the listing agent and ask the following:

Are there any inspection reports?
What work has the bank agreed to?
Is there a special "as is" form?
How long does it take the bank to accept an offer?
How does your agent deliver the offer?

Offers are usually FAXED to the bank. The listing agent needs your originals. There is no formal presentation. Keep in mind: nothing happens evenings and weekends (banks are closed)

Since there is no face-to-face presentation to the bank, provide the listing agent with a pre-qualification or better yet, a pre-approval letter and buyer biography. Make your offer easy to accept.

Hopefully these tips will manage your expectations. Remember that REO's sell at pretty close to full market value and are not the deals presented on late night television.

Your Home's Value is Less Than the Mortgage!

America One Mortgage and Realty — Fri, 28 Sep 2007 10:24:03 -0500

For a variety of reasons, it is possible that the total debt on your home may be more than what the home is worth. Most of the time, this isn't a problem because time is the solution. Depending on how much you owe, just wait it out and the value of your home goes up. This solution does not work for everyone though, because some folks are stuck in a situation where they absolutely have to sell their home. This can happen for many reasons, some good and some not so good: relocation, financial hardship, divorce, death, illness, etc.. The result is that you may have to move, but you can't sell your home and make enough on the sale to pay off the mortgage plus closing costs.

So what do you do?..............

One option is to do nothing and not make your mortgage payment. That's a worst-case scenario because it impacts your credit rating more severely than some other alternatives. Another option is something called a "short sale." This is when you contact the lender, let them know about your hardship and ask them to accept less money than you owe. Of course, the lender doesn't want to do this, but they also don't want to pay all the costs of foreclosing on a home, repairing any defects, placing it on the market, and getting the best price they can in what may be a market already overstressed with excess inventory.

Lenders absolutely hate to foreclose, so they may be willing to consider a short sale. Not always so don't get your hopes up. A short sale involves a lot of paperwork, time and effort and it is best if you have a real estate agent or someone knowledgeable to help guide you through the process and give moral support. A lot of stress is involved.

The first step is to contact the Loan Service Department of your lender. Their number and address will be somewhere on the mothly statement. Use the phone and the mail. Keep copies of all correspondence. The lender will ask you to submit a financial statement. They want to know that you really don't have the financial assets to repay the loan after you sell the home.

This is just the beginning. Assuming they give a tentative agreement. Your real estate agent still has to put the home on the market, find a buyer, and get a bona fide offer. Once that has been accomplished, you submit all contracts and paperwork to your lender for a decision. This takes a while because there are several decision makers involved.

Your lender isn't usually your lender. They just service the loan for your actual lender, called the investor. Your paperwork is submitted to the investor for a decision.

Assuming you have mortgage insurance on the loan, the insurer is another decision maker in the process. Mortgage insurance covers lenders in the case of loan defaults. That way they can justify making high LTV (loan-to-value) loans. If the investor and the insurer both agree, your short sale is approved, and you can sell your home.

A short sale is basically a "forgiveness of debt." That counts as income and you have to declare it to the IRS.

It's a Buyer's Market - Seek Incentives!

America One Mortgage and Realty — Fri, 28 Sep 2007 10:07:00 -0500

When there are a lot of homes for sale and it takes a long time to sell them - that's a "buyer's market." In most of the country, that's the current situation. If it is a buyer's market where you live and you're looking to buy a home, you are in a strong position to negotiate for lower prices and incentives.

The guidelines for buyers' incentives do vary from loan program to loan program, so make sure to get pre-qualified first so you can ask your loan officer about the allowable incentives for your loan program and down payment. Let's talk first about how much you can ask for. If you are putting ten percent or more down, you can ask for up to six percent of the price of the home. If you are putting less than ten percent down, you can ask for three percent of the price. Nothing guarantees you will get everything you ask for, but sellers are generally willing to negotiate and give you something.

The next thing you should do is make an offer and ask for those incentive funds to be applied toward your non-recurring closing costs. By applying the incentives toward your closing costs, you lower the amount of out-of-pocket cash you need to close the deal. Otherwise, you would have to come up with a down payment and the closing costs.

There are two types of closing costs: non-recurring costs and recurring costs. Non-recurring costs are things like points and fees that you only pay once and never pay again. Recurring costs are things like insurance and property taxes that you continue paying over the time you own the home. Most loan programs only allow you to apply incentives to pay non-recurring costs. FHA and VA loans are exceptions.

Now comes the hard part: making sure no one takes advantage of you. Sometimes a lender may just inflate your loan costs to use up the incentives you just negotiated. You need to work closely with your real estate agent and your loan officer to make sure you use all of those funds for your benefit. Let's explore this further.

If you can get a 5.75% fixed-rate loan for a one point loan origination fee, you can probably get 5.625% for one and a half points and 5.5% for two points. Remember, interest is a recurring expense whereas points are paid at closing and never recur. Therefore you will almost certainly save money on a loan with a lower interest rate but higher points.

If you don't think your lender is getting you the best deal, talk to him (or her) directly and ask what a loan officer from another company could get you for the same costs. If you don't want to play hardball like that, get your agent to play hardball. The agent wants you to close on the real estate deal because if you don't close, they don't get paid. Ask for help if you need it.

What you don't want to do when you make an offer in any kind of market is ask for a "carpet allowance." Most lenders won't allow carpet allowances because it is just cash in your pocket and there is no guarantee the money will actually be spent on a new carpet. If the carpet really needs to be replaced, just ask the seller to replace the carpet before you close. That's allowable and it still saves you money replacing it yourself after you move in.

Also, don't load up your offer with a lot of contingencies, especially when you are pursing incentives. An example of a contingency would be, having to sell your home to buy this one and making your offer contingent on that sale going through. Loading up your offer with contingencies makes it less certain you will actually close, so that makes it less likely the seller will offer you lots of financial incentives. The one contingency you always want to include, especially in this market, is that your offer is contingent upon the property appraising at the purchase price by the lender's appraiser.

Understanding Adjustable Rate Mortgage (ARM) Loans

America One Mortgage and Realty — Wed, 05 Sep 2007 23:46:31 -0500

Adjustable rate mortgages or ARMs are chosen by about one third of all loan applicants. Unfortunately, many people do not understand the key components of an ARM or how they are calculated. It is critical to understand the four key components of adjustable rate mortgages when comparing loan offers from various lenders.

In general an ARM starts at one rate of interest and then fluctuates up and down during the period of the loan based on several factors. Knowing and understanding these critical factors will help you in your decision making process when shopping for an adjustable rate mortgage. An ARM can be divided into four basic parts: the index, the margin, the adjustment period, and rate caps.

1.) Index: Every ARM is tied to an index. This index is basically a movement of an objective economic indicator. This index can be anything the lender wants to tie your rate to but it is typically indexed to a 1 year treasury note, prime rate index, Cost Of Funds Index (COFI), or London Interbank Offered Rate (LIBOR). Some of these indexes move up and down slowly and others can change very rapidly. So investigate the history of the different indexes and pay close attention to how often they move and how much. Try to choose an index that moves slowly so your rate and monthly payment remain fairly stable over time. Choosing which index to use with your loan is one of your most important decisions when shopping for a loan.

2.) Margin: The margin is another important part of any adjustable rate mortgage. The total interest rate you will pay will be equal to the index rate plus the margin. The margin is a number that the lender will add to the selected index. For example, the lender may specify a margin of 2.25%. so if the selected index is at 4% then the effective mortgage interest rate will be 6.25%.The margin represents the lenders cost of doing business and basically equates to the amount necessary to cover their expenses, overhead, profit, lender defaults and foreclosures. Always look at the margin to make sure it is competitive.

3.) Adjustment Period: The adjustment period is how frequently the lender can change or adjust your mortgage rate up or down based on the movement of your selected index. An adjustment period could be monthly, quarterly, semi annually, annually, every three years, or every five years. Most common adjustment periods are every six months or annually. On every adjustment period anniversary the lender will look at your index and see if it has changed. At this point they will add your margin to the new index rate and this will be your new effective mortgage interest rate until the next adjustment period. Most of the time the longest adjustment period will be best. The longest one will give you the greatest stability in your rate and monthly payment.

4.) Rate Caps: The fourth and last part is rate caps. Lenders use rate caps to show how much of an interest rate change is permitted each adjustment period. A rate cap protects consumers from wild swings in their loan index by limiting the increase from period to period. Without rate caps in a volatile market an index could start at 6% and shoot up to 12% by the end of the adjustment period. But with a rate cap of 3% the rate could not be adjusted more than 3% therefore, the new loan rate would only be adjusted up to 9% not 12%. Remember the rate cap is simply the maximum the lender can change your rate at the adjustment period. In general try to get the smallest rate cap possible when shopping among lenders. Using these four factors when shopping for an adjustable rate mortgage should give you a good idea which ones are more competitive.

How To Invest In Real Estate

America One Mortgage and Realty — Wed, 05 Sep 2007 23:27:56 -0500

The secret to profitable investing in real estate is the ability to see profits where others see problems. Evaluate every potential property with all the possibilities in mind. Think outside the box - don't even consider homes that are in good condition. Homes that don't need immediate renovation are in high demand, and high demand means high sale prices and low profit potential for you. You need to be looking for the homes that no one else wants.

Become an area specialist

Choose a geographic area to work in and find out everything there is to know - schools, shopping and especially how much houses sell for. Specializing in one area is the secret to finding great bargains. The more you know about the area, the quicker you can spot the bargain when it comes along.

Go for affordable neighborhoods

There is a larger market for lower priced homes. Renting or buying an expensive home is not an option for most people. It's true that more expensive homes have a higher profit potential per house. But you also take on a higher risk of not finding a buyer or tenant right away.

Homes in expensive neighborhoods cost more from beginning to end. Expensive homes are also more sensitive to swings in market conditions. And finding a fixer upper in an expensive neighborhood is an extremely rare occurrence.

Find the right neighborhood

On the flip side, you don't want to invest in a run down neighborhood either. Most people live in high-crime, run down neighborhoods because they must, not because they want to. Would you buy a good home in a bad neighborhood?

The ideal neighborhood has a history of rising property values - this indicates demand. If you can supply a gorgeous home in ready-to-move-in shape, you'll have an ample supply of buyers. You should also look for other homes that are being upgraded - this signals confidence in the neighborhood. Finally, look for a low ratio of renters to owners.

Select the right property

Look for a home that blends in well with the neighborhood. Don't go for the odd house that's out of character. Next, stay away from properties that need major structural repairs. You're looking for something that needs a cosmetic rehab. Major repairs are expensive, time-consuming and eat away at your profits. Your goal should be maximum upgrade at minimum cost so you can profit and buy your next property.

Consider minor layout changes

Generally, you should avoid properties with impractical or just plain bad layouts. At the same time, if you can improve the layout with some minor, relatively inexpensive changes, you could realize a lot of extra profit with only a little extra work.

Save money with inspections

Remember, you are making a significant investment. You should make the final deal contingent on a satisfactory inspection. The inspection will either confirm that no major structural repairs are needed, or it may highlight problems that kill the deal. A few hundred dollars for the inspection could save you thousands.

Distressed properties are without doubt the best properties to invest in. You can buy them at an attractive, below market price and quickly add value with a few minor repairs. But these opportunities won't come to your door. You have to find a neighborhood and make it your second home until you know what properties are worth and why people want to live there. Then you'll be able to spot the handyman specials as soon as they become available.

10 Ways To Fix Bad Credit

America One Mortgage and Realty — Wed, 05 Sep 2007 23:17:51 -0500

People get carried away when spending and end up with debts. If the finances are not managed well and the payment scheme not properly planned these debts can escalate. Escalating debts and a failure to make the necessary payments results in a bad credit history. This record cannot be easily wiped off. It takes a lot of efforts. There are credit bureaus which maintain a database of your credit history by taking in information from mortgage firms, banks and other creditors. These bureaus can account for accurate negative credit data for 7 years as also bankruptcy for a span of 10 years.

A tainted credit history can hinder you in the long run. It may prove to be a major obstacle in getting future loans sanctioned. It is thus imperative to improve ones credit history and here are some corrective measures:

1. Firstly, you should realize the reasons that got you a bad history. Inquire with regards to this with the creditors and verify their explanations. Scrutinize your reports to check for any mistakes or anomalies.

2. Be punctual in paying your installments. This will reflect well in your records.

3. Keep only a minimum number of credit cards. Cancel all the other unnecessary accounts and inform the credit agencies with regards to this. Also keep your credit card information secure and well guarded. If in case your information gets leaked or is stolen, inform the credit company at the earliest. This will block all unauthorized activities from taking place on your expense.

4. At all costs avoid tax liens resulting from not paying the income tax, etc or filing for bankruptcy. Bankruptcy stains your credit history for 10 years while an unpaid tax lien does the same for 7 years.

5. If possible, appeal for a decrease in the credit limit of your account. This will help to keep a check on your spending.

6. Request a close friend or a family member to stand in as a co-signee for a credit card or a small loan taken to repair your credit status. This will ensure that you tighten up your expenses and pay the installments on schedule as even the record of the friend is on the line.

7. Opt for a credit card that will aid you in improving your credit history. Keep only the required amount in the account needed to meet all the expenses.

8. Examine the credit reports each year end. Check for any double charges, fraudulent purchases or glitches that may occur. If there are no errors, the fault is yours and the onus lies on you to set it straight by sticking to the payment plan.

9. Sometimes there may be genuine reasons like medical problems, job loss or divorce resulting in you skipping the payment. Get in touch with your creditor and explain the problem and decide on the payment plan. At times they may rectify your history after the payment is done.

10. If you seem incapable of managing the situation there are repair firms which help you to optimize your budget and ensure you pay the installments. However the irony is that they themselves may add to your burden by charging you in the range of $2000 as fees. Thus the ideal way is personally sort out your credit issues.

These 10 tips can help you in fixing your bad credit history.

A Warning to Homebuyers

America One Mortgage and Realty — Mon, 03 Sep 2007 13:48:29 -0500

California is in a slumping real estate market, and there are many new homes on the market. Herein lies a potential problem for you if you are looking for a new home in a new subdivision. If you have been paying attention to the marketplace, you might know that some builders are offering fantastic incentives to attract buyers. At this time in many areas, buyers are staying away in droves.

Imagine this scenario for a moment. You are driving around on a Sunday afternoon and you see a subdivision with all new houses and a new golf course. You love the model house you tour and you decide to buy. It is your lucky day because the builder happens to have that exact model as part of their unsold inventory.

The price you and the builder have settled on is for $600K. You move in, play a few rounds of golf, and all is well. Three weeks after you move in, you are driving home and you notice a new sign in front of that builders model. You are stunned because the new sign is for $525K. What happened to your $75,000.00?

Can it happen? You bet it can happen and in a market like we are currently in, I expect it will happen. You as a buyer need to be vigilant and do as much homework as you possibly can. Do you want to be one of the first buyers in a new subdivision or at the end of the build out?

In the housing business, it is the values of houses similar to yours, in close proximity to yours, that determine the value of your home. I hope you don't have to move in a year and the builder has sold three more houses on the street, all for $525,000.00.

Housing Prices Drop Again!

America One Mortgage and Realty — Mon, 03 Sep 2007 07:01:35 -0500

As we move into August, mortgage interest rates are dropping slightly, responding to rising concerns about a softening housing market. Sales of new and existing homes have been dropping sharply over the past two months. That sparked a major drop in stock values in late July.

At the same time, underwriting standards for mortgages, particularly subprime loans, are tightening dramatically. Many lenders are exiting the subprime products arena, especially the formerly popular and risky 2/28 ARM loans - mortgages with a fixed rate for the first two years before reverting to an adjustable-rate loan for the remaining 28 years. However, 2/28 and other hybrid mortgages are still offered by some lenders, but those lenders are much more diligent in only qualifying borrowers who are in a financial position to make their monthly payments after they increase.

The average rate for a 30-year, fixed-rate mortgage in early August is down to 6.69 percent, according to Freddie Mac, a major government-sponsored buyer of home mortgages. Last year at this time, the rate for a 30-year fixed mortgage was 6.72 percent - slightly higher than the current rate. The rate for a 15-year fixed mortgage is 6.37 percent. For a 5-year hybrid mortgage, it's 6.30 percent. The average points (fees) for all these loans is 0.4 percent of the loan.

"Mortgage rates are easing on market concerns that a further weakening of housing demand will delay any recovery in the sector," said Frank Nothaft, Freddie Mac's chief economist. "For example, building permits fell last month to the slowest pace in a decade, and more recent data on sales of existing homes show a fourth consecutive monthly decline. Several factors are contributing to the softening in housing markets. In addition to the tightening of lending standards, especially on subprime loans, the 40 basis point jump in rates on 30-year fixed mortgages in June may have deterred potential buyers.